Should I study Economics

8/7/2019 Should I study Economics

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Should I study Economics? Here are 10 absolutely foolproof reasons forstudying Economics.

1. Economic Forecaster.

As an economist you can make a living from predicting futureeconomic events. The key to being a good economic forecaster is touse a mixture of dice and lottery numbers. (some economists make themistake of using just lottery numbers, but this can lead to really badforecasting) If this method fails just use the statistics from the previousyear; they are always more accurate than the actual predictions ofeconomists.

Note: Economists have successfully predicted 10 out of the last 2recessions.

2. You can always give Advice.

When the economy enters a recession, you will be able to telleverybody why the economy is in a recession. Also, you will be able tosuggest several conflicting reasons as to how we can get out of arecession. This will simultaneously, both confuse and impresseverybody; but it doesn't matter because nobody ever listen toeconomists.

3. Diminishing Returns.

When you get ill from drinking 10 pints of beer in one night. You will beable to impress your parents with the knowledge that the law ofdiminishing returns is actually perfectly correct. As a side effect, youmay also learn about opportunity cost:

Spending 40 on drink equals hangover.

4. Rational Behavior.

Economics assumes people are rational. Economics assumes thatpeople choose the activity which optimises our utility. When peoplewant to buy a season ticket to watch Leeds United, you can tell themthis is irrational behaviour. The Leeds United supporter will definitelyappreciate the cogency of your economic reasoning and will, morethan likely, start supporting Doncaster Rovers with immediate effect.


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5. Economics is a very humorous subject.

Did you know that you can rearrange Economics to get "comic nose".If, this alone, was not sufficient proof of the hilarity endemic in thesubject of Economics, try these economics jokes:

How many Free Market economists does it take to change a lightbulb? None, in the long run, it will change of its own accord.

How many Marxists does it take to change a light bulb? None,smash the light bulb, a light bulb is a mere representation of thecapitalist ideology that gives a feeble light, rather than the Truesource which is the sun.

6. Economics gets you a high paid job.

Actually, this is the only reason people study economics. Unless ofcourse you have a strange desire to be an economics teacher; in whichcase you will enjoy your students repeatedly asking you the question;"Why didn't you get a proper job in the city, Sir?"

7. It's better than studying Geography.

True, but purists may argue this doesn't prove very much.

8. Economies of Scale

When you forget your wife's / girlfriends birthday you can say that youwere merely seeking to maximise economies of scale and productiveefficiency, because you are waiting to get her a really big present atChristmas. This always goes down very well.

(In the incredibly unlikely event it doesn't, don't forget to alsocheck out: www.nofriendsandsingleconomist.com)

9. However - On the Other Hand

Economics is the only subject where contradicting yourself is seen as ahighly desirable attribute. To double the mark on your economicsessays, just say after each paragraph: however, on the other hand thisis probably not true at all...

10. You will Know Why you are Unemployed


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When you are standing in the unemployment queue, you will be able totell everyone the type of unemployment they are suffering from. Thiswill greatly endear you to the ranks of the unemployed; who willdefinitely not, sarcastically, ask you;

"If you know everything, how come you haven't got a job then?

The Difference Between Economists and NonEconomists

Economists have a certain world view. Their economic training gives adifferent insight into issues that non economists might not appreciateor consider important. These are few examples of different approachesto economic issues. There are other examples of differences and

perhaps these differences are not as significant as we might imagine; Iwould be interested in hearing the view of both economists and noneconomists (assuming of course a 'noneconomist' would read aneconomics blog..)

Rational / Irrational

Economic theory assumes people are rational and will make rationalchoices. Yet in the real world people often make decisions which canonly be viewed as irrational from an economic perspective. E.g. Whywould people choose to take out pay day loans at an interest of greater

than 2,000% apr? Why would people pay more for a product that isidentical to another cheaper product? This is perhaps a big difference,but also highlights a limitation of economics. This limitation isexamined in behavioral economics

Opportunity Cost

When watching a political debate or the views of voters, it alwaysstrikes me how little people consider the idea of opportunity cost. Youcan frequently here people say 'The government should save thishospital' 'The Government should provide more public transport' 'The

government should reduce that tax'. However it is very rare that apressure group or non economist will offer a way of funding thespending or tax cut; people often forget the opportunity cost of anyeconomic decision.

e.g. how often do you here voters of politicians argue 'The governmentshould increase spending on public transport; and this can be fundedby imposing a political unpopular tax on cars. Furthermore, this tax is


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likely to overcome external costs and improve social efficiency.'For an economist any decision on the governments budget imposes anunavoidable opportunity cost. Increase spending will lead to eitherhigher tax or more borrowing. Non economists often forget theopportunity cost of economic choices.

Statistics vs Personal recollections

Non economists tend to put a greater emphasis on personalexperiences and every day events. For example, many in the US feelthe economy is already in recession because of the bad news onhousing markets, subprime crisis and perhaps a personal experience ofsomeone losing a job. An economist would be wary of givingimportance to one off factors because they can give an inaccuratereflection of the overall picture.

Exaggeration

The media often seek to exaggerate the 'housing crisis' and 'rocketing'price levels. For example, in the UK, newspaper headlines haverecently focused on 'The biggest house price fall for 15 months' Thissounds more impressive than another headline, which is perhaps moreaccurate . 'Monthly house price figures show annual rate of Houseprice inflation falls from 6.5% to 5.3%' Both headlines are correct insome way; but arguably the first headline emphasises a certain aspectof the statistics for greater 'shock value'. Of course, this is not to sayeconomists can't use statistics for exaggerated effect; I'm sure readers

could give numerous examples. But, perhaps non-economists are morelikely to use misleading statistics, especially in the media and politicalworld.

Certainty vs Uncertainty

The joke goes, put 10 economists in a room and you get 11 differentanswers. If you are wondering where the actual punch line is, don'tworry - it's not that funny. But, the point here is that economists aretrained to see both sides of the argument. For every statement a goodeconomist will feel obligated to add numerous caveats and other

potential outcomes. A recession might occur, but it depends on X,Y,Z.A non economist is more likely to see issues in black and white. Theeconomy is messed up - We're heading for a recession.

Externalities

On the issue of imposing taxes on negative externalities, economistswill justify tax and subsidies based on the issue of externalities. For


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example, an economist would say a congestion tax is justified becauseit internalises the external cost of driving into a city centre. Externalityarguments can often be difficult to explain to non economists. If youmention a congestion charge to an average voter, there instinctivereaction would be 'not another tax on the motorist' 'this tax is unfair on

low income groups'. This is not to say non economists cannot think interms of externalities, but generally this is a low priority or doesn'timmediately spring to mind

I got the inspiration to write this post after reading:

Are Externalities a bridge between them and us Market Failures and making economics loveable

New Developments in Economics

Economics is an evolving subject. Issues which were once hotlydebated gradually fade from view and become insignificant over time.In their place we get new issues rising to the surface. These are someof the important recent development in Economics:

Increased Importance of Globalisation.

Globalisation is a fuzzy term. In a way globalisation has always beenwith us. Economies have traded with each other for many centuries.Not since Japan in the nineteenth century has a country been able tosuccessfully pursue 'autarky' - self sufficiency. What has changed in

recent years is the scope of global integration. Ripples in markets areinvariably felt throughout the world. Communication and transporthave vastly improved; this has helped give the impression that theworld is much smaller and more closely connected. The multinationalcompany is more prevalent than ever before. Globalisation affectsmany aspects of economics from competition policy to Monetary policyand agricultural policy.

Shifting Balance of Global Economy

In the post war period, the US economy was dominant. The old phrase

'when America sneezes, the rest of the world catches a cold' was verymuch appropriate. But, America's share of global output and globalresources is declining rapidly. In particular, it is the two sleeping giants- India and China who are coming to play an increasingly importantrole in the global economy. This means we can no longer considerglobal economics from an Anglo- American perspective. We need tostudy and evaluate the implications of China and India's development.
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Pressure on Commodities.

The world is used to dealing with a situation of abundant supply of rawmaterials. But, diminishing supply and growing demand threatens tochange that. Oil prices are rising, partly due to speculation, but, partly

due to the fact demand is simply rising faster than supply. In the shortterm the price of oil may fall, but, also it may continue to rise. In thelong term, the prices of commodities like food, oil and metals could risemuch faster than inflation affecting many issues for both developedand developing economies.

Environmental Change.

The past decade has seen recognition that economic development isimpacting the environment in a possibly devastating way. In the past,theories of global warming and ecology were seen as fringe topics.

Now they are seen as the greatest threats facing society - even if atthe moment, we are unable to take effective steps to deal with theproblem. In the future, it will be increasingly necessary to deal withenvironmental change. This challenges fundamental ideas such as thegoal of society is to increase GDP. Maybe the goal is not to increaseoutput, but, only increase GDP if the environment is secured.

Rogue Economics

The recent credit crisis, shows how financial deregulation andglobalisation has contributed to many new problems, which leave

economies vulnerable to financial speculation.See: Rogue Economics by Loretta Napoleoni

Does Economics Growth Bring Increased LivingStandards?

Increasing the rates of economic growth has long been the holy grail ofconventional economics and politics. To a large extent, mostdeveloped economies have been highly successful in increasingeconomic output. But, has such an impressive increase in nationaloutput actually improved people's standard of living?

To decide whether economic growth has increased happiness is highlysubjective, and it is difficult for economists to make concretearguments. However, it is worth noting the various side effects ofgrowth and consider there impact on general living standards.
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Benefits of Economic Growth

1. Increased consumption.

Consumers can benefit from consuming more goods and services. An

assumption of economics is that consumption is related to utility, so intheory, with higher consumption levels, there is greater prosperity.

2. Improved Public Services.

With increased Tax Revenues the government can spend more onimportant public services such as health and education. Improvedhealth care can improve quality of life through treating diseases andincreasing life expectancy. Increased educational standards can givethe population a greater diversity of skills and literacy. This enablesgreater opportunity and freedom. Education is seen as an important

determinant of welfare and happiness.

3. Reduced Unemployment and Poverty.

Economic Growth helps to reduce unemployment by creating jobs. Thisis significant because unemployment is a major source of socialproblems such as crime and alienation. However, despite rapidincreases in economic growth since the Second World War, areas ofhigh unemployment in the EU remain. For example, in France andSpain there are currently high levels of structural unemployment. Thiskind of unemployment may not be reduced by economic growth.

Why Economic Growth may not bring increasedHappiness.

1. Diminishing Returns.

If a section of the population is living in absolute poverty, economicgrowth enables people to have higher incomes and therefore they will

be able to afford the basic necessities of life such as; food, and shelter.When economic growth can overcome this type of poverty there is aclear link with improved living standards. However, when incomesincrease from say $35,000 a year to $36,000 the improvement in livingstandards is harder to justify. Diminishing returns is a basic economicconcept, which suggests the tenth unit of a good will give much lesssatisfaction than the first. If we already have 2 cars, does our livingstandards really improve if we now have the capacity to own 3 cars?
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Often as economic growth increases incomes, people increasingly savetheir money (higher marginal propensity to save) this is basicallybecause they struggle to find anything meaningful to spend theirmoney on.

2.Externalities of Growth.

Economic Growth with involves increased output causes external sideeffects, such, as increased pollution. Global warming from pollution isbecoming a real problem for society. The economic and social costscould potentially be greater than all the perceived benefits of recenteconomic growth. However, it is worth noting that economic growthdoesnt necessarily have to cause pollution. The benefits of growthcould be used to develop better technologies that create less pollution.It is just at the moment this has been a low priority.

2. Economic Growth can cause Increased Inequality.

It is perhaps a paradox that higher economic growth can cause anincrease in relative poverty. This is because those who benefit fromgrowth are often the highly educated and those who own wealth. In1980s and 1990s higher growth in the UK and US has resulted inincreased inequality. (1) However, it depends on how growth ismanaged; economic growtht can be used to reduce inequality. Thisoccurred in 50s and 60s.

3. Increase in Crime and Social problems.

It is another paradox that as incomes increase and people are betteroff the level of crime has increased as well. (2) This suggests thatcrime is not motivated by poverty but perhaps envy. One reason whycrime rates increase is that quite simply there are more things to steal.Back in the 1930s auto theft, mobile phone theft e.t.c were rare ornon-existent. Economic Growth has created more goods to steal.However the link isnt absolute for example in recent years crime ratesin US have reduced from their peak. But there has been a generalassociation between growth and crimes.

5. Higher Economic Growth has led to more hours worked.

In the beginning of the industrial revolution, higher growth led topeople working lower hours.(3) However, in the past couple of decadeshigher incomes have actually led to people working longer hours. Itseems people are unable to enjoy their higher incomes. Feeling thenecessity or preferring to work longer hours. This suggest people are


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valuing earning money more than leisure. However, this trend mayalso be due to companies wanting people to work longer hours.

6. Diseases of Affluence.

Economic Growth has enabled improved health care treatments, but atthe same time there has been an unexpected rise in the number ofdiseases and illnesses related to increased prosperity.(4) One exampleis obesity. Modern lifestyles and modern diets have created anepidemic of obesity, with significant proportions of the populationexpressing a desire to lose weight. It could be argued that problemssuch as obesity and stress related illnesses are not a directconsequence of growth. This is true, but, it is symbolic of the factincreased prosperity has created as many new problems as it hassolved

References

1. Gary Burtless, Senior Fellow, Economic Studies ProgramHas Income inequality really increased in US? TheBrookings Institution, January 11, 2007

2. The United States Crime Index Rates Per 100,000Inhabitants went from 1,887.2 in 1960 to 5,897.8 in 1991.By 1991 the crime rate was 313% the 1960 crime rate.

3. A new study by the Organization for Economic Cooperation

and Development (OECD) confirms that on average, peoplein the U.S. are putting in 20 per cent more hours of workthan they did in 1970. See: Spark

4. Obesity related illnesses rise with economic developmentDisease of Affluence

Conclusion

There are clearly some benefits of economic growth. These benefitsare most visible when for low income countries. Economic growthenables the possibility to deal with many serious problems of poverty,homelessness and lack of basic amenities. However this paper is moreinterested in whether economic growth in developed economies isactually increasing living standards. Does rising incomes equal risingsatisfaction? The answer is not clear-cut. However there are clearlyseveral issues, which suggest that economic growth, has contributedto serious social, environmental and economic problems, which havereduced living standards. This is not to say economic growth is doomed
http://www3.brookings.edu/views/papers/burtless/20070111.pdfhttp://www.disastercenter.com/crime/http://www.the-spark.net/np731205.htmlhttp://medicine.plosjournals.org/perlserv/?request=get-document&doi=10.1371/journal.pmed.0020133http://www3.brookings.edu/views/papers/burtless/20070111.pdfhttp://www.disastercenter.com/crime/http://www.the-spark.net/np731205.htmlhttp://medicine.plosjournals.org/perlserv/?request=get-document&doi=10.1371/journal.pmed.0020133


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to bring unhappiness. In fact the challenge is to harness the potentialof economic growth to make sure it really does increase sustainableliving standards.

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Economics of Suffering

Suffering Isn't Good.

No Pain, no gain.' As a competitive cyclist, I often hear this mantra. Theworrying thing is that we hear it increasingly with regard to economicpolicy.

There is often a general feeling, that if you implement somethingpainful, it must be doing something good. Like the necessary injection

to protect you from a worse disease.

The question is does is suffering good in economics?

At the moment, the big issue is spending cuts. The new UKgovernments are almost gleefully talking about the necessity of'painful cuts' and years of austerity. Perhaps this is political sense -make it sound really painful and then when its not quite as bad,electors will vote for you.

The problem with large spending cuts is that they have the capacity to

push economy into recession. Unemployment in the UK is already at itshighest level since 1994, more public sector job cuts and a fall inaggregate demand would further worsen the situation.

If drastic spending cuts (plus much negative talk of how bad theeconomy is in - thereby reducing consumer confidence) did lead tolower growth, it ironically makes it much more difficult to reducedeficit. A fall in growth would reduce tax revenues and lead to higherunemployment spending. There is a danger of cutting spendingdrastically, but, not reducing debt very much.

The first thing that springs to mind, is the great depression of 1931.Faced with mass unemployment and a collapse in GDP, conventionalwisdom forced the government of the day (the national coalition led byRamsay McDonald) to cut unemployment benefits to balance thebudget (presumably bond markets were on the verge of revolting thentoo). Needless to say the cut in unemployment benefits and highertaxes only made the Great depression worse.
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Another example is 1937. As the US was recovering from the GreatDepression, the government prematurely tightened fiscal policy(reducing spending and raising taxes), combined with a smalltightening of monetary policy, the economy fell back into a recession -

which of course worsened the deficit.

When the Conservatives came to power in 1979, there was a similarfeeling of 'we really need to suffer as much as possible' Thegovernment tightened fiscal, monetary policy and allowed theexchange rate to appreciate. Even when unemployment hit 3 millionthere was no let up, as that lady wasn't for turning.

The good news is that it is possible to cut spending, and cut a deficitwithout plunging the economy into recession. It is all a question oftiming. If growth is robust, if jobs are being created in other sectors,

then a certain degree of cuts can be absorbed. A small detail about thecoalition is that the Lib Dems added a caveat to spending cuts - theysaid they should be made in consultation with the Bank of England.

In theory, this should mean that the Bank of England will be able toveto any over zealous fiscal tightening - if there isn't sufficientmonetary stimulus. Though whether that would happen in practise isopen to debate.

There is always room for thoughtful evaluation of governmentspending. Just because you've always spent 600bn, doesn't mean

every billion is well spent. Government spending is only a means toend, not an end in itself. There will always be powerful pressure groupsfighting for their corner, but, this is not a necessary justification.

It's behind the scope of this blog post, to evaluate where governmentspending cuts would fall. The main point is to say - Be careful of over-reacting. Be wary of shrill announcements from politicians, who say weare on verge of collapse. We often hear the bond market is on theverge of revolt. But, long term bond yields are as low as ever (10 year= 3.51%).

Related

The Economics of Fear

The Economics of Fear

In altruism and behavioural economics, we took a very basic look atwhy the assumptions of traditional economics are insufficient for
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decision making. Another important factor in behavioural economics isthe issue of fear. There are many examples of how this issue caninfluence economic decision making.

Insurance.

People are willing to pay a significant amount to prevent a smallchance of losing a large amount of wealth. In the long run, insurance ismore expensive than the benefits that accrue, but, people prefer thesecurity of knowing they won't lose everything. However, withinsurance there is also the issue of decreasing marginal utility ofwealth. We don't miss the extra 50 a month insurance payment, but,we could not cope with losing our house.

Hysteresis.

This is an idea that people are influenced by events in the past. Even ifcircumstances have changed, people remember what it was like in thepast and this remains a powerful influence over current economicdecision making. For example, after a period of economic properity,people may keep spending in the sales, even though their futureincome prospects are less promising. Expectations of inflation are verymuch based on past data. High inflation begets more high inflation.

Influenced by Outside Influences.

Consumers are very much influenced by outside media pressures and

perceptions of economic reality. For example, an interesingphenomena is how many Americans think America is already in arecession. The American economy is not a recession (even if houseprices are falling and there is a credit crunch) Yet, people will talk as ifthere already is a recession. This fear of a recession can of coursemake a recession a reality. If people think they are in a recession, theirspending will fall (even though their income may be rising) this willlead to lower aggregate demand and lower economic growth. Theimportant thing is that people's spending is influenced not by their ownincome, but, perceptions of the general economic outlook.

A good example of this is the run on the bank syndrome. When peopleheard Northern Rock was in difficulty, people rushed to the bank towithdraw their savings. Because other people were rushing to thebank, many people felt they ought to. This was despite the fact thatNorthern Rock's problems did not affect savers directly. It was due toproblems of refinancing mortgage loans. But, in this kind of situationthere is often a 'herd' mentality - people follow what others are doing.
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Bounded Rationality

Another issue is that people may be bound by limited information.Therefore, it is not so much fear as inadequate information which leadsto irrational decision making. For example, how many American

consumers would know the inflation rate and economic growth rate ofthe American economy.

Booms and Busts

Markets with supposed 'perfect information' are often subject to wildfluctuations. In periods of booms people jump on the bandwagon -buying share or houses. But, when market sentiment changes a little,the mood can swiftly change as people frantically sell, trying to get outbefore the market collapses. There are many examples of pricesmoving independently of economic fundamentals e.g. dot com bubble

and bust of early 2000s.

Economics - The Dismal Science

It is debatable whether economics should actually be defined as beinga science. A science like Maths or Physics usually gets its satisfactionfrom proving something to be irrevocably true. Solve a complexequation and QED thats the answer, theres no argument. Economicson the other hand will rarely give us a simple answer. Ask fiveeconomists a question and the joke goes youll get 6 different answers.

Yet economics could make a claim to be a science - even if only asJohn Ruskin disdainfully called it The Science of getting riches. Overthe years Economics has also managed to adopt the label of theDismal Science with plenty of theorists proudly claiming they do havethe solution and answer to all our problems. (Although many may besurprised at the origins of the term 'dismal science'

Economics began as soon as hunter men began to exchange theircaptured prey with other caveman, but generally the science ofEconomics did not begin to be formalised until fairly late. Economicshas produced some colourful characters who have all added something

to the science even if there contribution is not universally admired.

The Dismal Prophecies of Malthus

One of the first economists to proffer his theory was T.Malthus. Malthusis chiefly remembered for his essay on Population. In this essayMalthus argued the human race was doomed because the populationwas increasing at a faster rate than our capacity to grow food. In many
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ways Malthus was one of the earliest proponents of The end is nighsyndrome, and unsurprisingly it was Malthus who helped claim foreconomics the label The Dismal Science Fortunately howeverMalthus displayed a trait that many economists would later share - hewas wrong. The population didnt starve. In fact during the nineteenth

century the forces of capitalism flourished creating unprecedentedwealth for those who owned the means of production.

Origin of Term Dismal Science

It is worth pointing out that the origin of the term 'Dismal Science'actually originated because of Thomas Carlyle's disgust at the wayeconomists rejected slavery in favour of equality and the efficiency ofmarkets. Although it may be hard to believe now Thomas Carlyle,believed slavery was the highest form of society, morally superior to asociety where people are equal and free to make their own choices.

The term dismal science is first mentioned in Carlye's "Occasionaldiscourse on the Negro question". See origin of term

Adam Smith - The Invisible Hand

One of Capitalism strongest exponents was the economist AdamSmith. In his book The Wealth of Nations Smith claimed that if peoplefollow their own self interest, then this these individual acts ofselfishness have the remarkable effect of leading to the greatestoverall benefit for society. This is the basic principle of the bookalthough Adam Smith did take 1,260 pages to say it. (Unfortunately

very few economists have ever learnt the art of being concise.) AdamSmith has become synonymous with support for free marketeconomics, however many people forget he was rather a modestScottish intellectual was also made chair of moral philosophy atGlasgow University. Smiths other major work was about Charity andethics but it was his articulation of free market economics for what heis chiefly remembered. Anyway his seemingly paradoxical argumentabout the free market has remained at the centre of all major debatesin economics. Is an unbridled free market of Capitalism really the besteconomics system?

Nevertheless even the most ardent free market economist cannotignore the fact capitalism creates inequality and in the nineteenthcentury this inequality was painfully evident. Thus many economistscame along to challenge the free market ideologies of Adam Smith.
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Karl Marx - The Revolutionary Economist

Whether deserving or not Karl Marx was perhaps unwittingly destinedto play a major role in world history. Basically Karl Marx was of theopinion that the inequality of capitalism would inevitably lead to a

revolution of the oppressed workers leading to the formation of aCommunist state. In fact Karl Marx went to extraordinary lengths toexplain this principle. One of his principle works, Das Kapital couldmake claim to be one of the most boring books ever written. (Perhapsonly beaten by Adam Smiths Wealth of Nations and LudwigWittgensteins Tractatus Logico-Philosophicus,) However in F .Engels,Marx had a companion who was able to help romanticise the ideals ofcommunism. Even 10 years after first reading it I can still quoteverbatim several passages from the Communist Manifesto.

A spectre is haunting Europe -- the spectre of communism

The Communists disdain to conceal their views and aims. Theyopenly declare that their ends can be attained only by the forcibleoverthrow of all existing social conditions. Let the ruling classestremble at a communist revolution. The proletarians have nothing tolose but their chains. They have a world to win.

Despite the various attractions of Marxism, it never really took hold inthe US and Western Europe. Mainstream economists were fullyentrenched in the free market orthodoxy of classical economics. Just toreiterate, these economists differed little from the original ideas

postulated by A.Smith. Basically they argued the free market wouldcreate wealth, prosperity and any problems would be solved by theinexorable workings of the invisible hand of the market. However inthe 1930s free market economics was to face a seemingly impossiblechallenge The Great Depression with its mass unemployment,bankruptcies and falling output. In the face of such economic hardshipthe appeal of radical alternatives gave cause for serious politicalturmoil - Western democracy itself was threatened. But manyeconomists stuck to their ideology arguing in the Long Run everythingwould be OK.

It was thus in the middle of the great depression that J.M.Keynes roseto prominence retorting to orthodox economists In the Long Run weare all dead Keynes saw no point in waiting a couple of decades forthe depression to come to an end. Keynes argued for immediategovernment intervention and in particular the government shouldspend, spend, spend.


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Economics has very few, what you may call heroes, but if anyeconomists deserve such a label it would have to be Keynes.

J.M.Keynes - The Greatest Economist?

John Maynard Keynes was born in 1893 the same year that Karl Marxdied. Both Marx and Keynes were to write influential critiques of theCapitalist system but here the similarities end completely. Marx was arather angry loner, many of his enterprises failed and the majority ofhis life was spent in exile. Anonymously working in the British library,Marx spent many years working on his theories about the inevitableoverthrow of Capitalist society. Marx never lived to see his theoriesproved generally wrong, although he may have been surprised at theimportance attached to them.

Keynes in many respects was very different, he cut a dashing figure a

brilliant economist, who could also mix with the elite of British society.Keynes attacked the inequities and insufficiencies of the free marketbut it didnt stop him from making a small fortune by speculating onthe foreign exchange markets. Keynes was also a visionary, while theAllies were clamouring for a victors peace at Versailles in 1919,Keynes resigned from the British delegation. He argued the reparationsimposed on Germany would be impossible to repay and that they werea recipe for the humiliation of Germany and future problems. His bookThe economic consequences of the Peace became a best seller andin retrospect proved to be a damning indictment of the narrowmindedness of the allied victors.

Keynes was brilliant at many things and he knew it. Once he wasplaced second in an economics exam. His only reply was that:

That shows I know more economics than the examiner.

This may sound arrogant but in all honesty it was probably correct.Keynes didnt just restrict himself to economics, he wrote a book onmathematical philosophy (highly praised by B.Russell) He was aleading figure in the Bloomsbury group of leading artists, poets andwriters. Keynes later even opened his own theatre, which like most

things he tried his hands at, proved a great success. Keynes may havehad many human weaknesses but he was able to brush these asidewith his evident genius and enormous capacity for innovation andradical ideas.

Keynes was no socialist but it didnt stop him poking fun at free marketeconomists. In direct challenge to the optimistic assertion of AdamSmith, Keynes took a different view.


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Capitalism is the astounding belief that the most wickedest of menwill do the most wickedest of things for the greatest good ofeveryone.

This shows Keynes at his best - happily attacking orthodox views with a

panache and confidence that was hard to resist.

It was the effect of the great depression that led Keynes to his greatestwork. He scoffed at the orthodox free market economists who said thegovernment should do nothing in the face of mass unemployment.

Keyness strategy was for the government to intervene, borrowing ifnecessary. This would create jobs which would give income for othersto spend thus creating more jobs. A deceptively simple idea but tooradical for western governments who were too unwilling to borrow,(bizarrely some economists like the US Federal Reserve were too

worried about the inflationary impact at a time when there wasdeflation.) Unfortunately it wasnt until the second world war andgovernments were forced to spend on military spending thatemployment increased to pre 1929 levels. Thus at the end of theSecond World War Keynes was now given high regard and he was putin charge of the economic planning for post war Europe. Unfortunatelyon achieving worldwide fame he died untimely at the early age of 62.

Unlike many radical ideas from economists such as Malthus, Owen,Marx e.t.c Keynesianism didnt wither on the vine but became part ofthe economic orthodoxy influencing the creation of a whole sub section

of economics (Macro Economics). Alas Keynes died in 1946 just as hehad achieved world wide fame. It had been hoped he would play a keyrole in the economic reconstruction of Europe.

The legacy of Keynes was remarkable; post war governments in theWest broadly followed Keynesian policys up to the 1970s. Generallythese decades were seen as a time of great stability and prosperity.Full employment was maintained and many countries experiencedrecord growth. However proving economics is a fluid science Keynesianeconomics has recently fallen out of favour with a recent resurgence ofsupport for neo classical ideologies with governments once again

praising the ideals of the free market. Alas (or perhaps fortunately,depending on your view) time and space prohibit a discussion of thislatest development. Although it is worth noting that manygovernments who adopt free market ideology rarely implement theirideas fully. For example Reagan who wanted to roll back the frontiersof the State actually increased the size of the US government mainlythrough huge increases in military spending. The present Bushadministration has also shown remarkable fiscal irresponsibility. The


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current budget deficit is approaching $600 billion combined with acurrent account deficit of approximately $665 the US economy isanything but a paradigm of classical economics.

Bibliography

1."Four Essays on the First Principles of Political Economy" By JohnRuskin London Smith, Elder, and Co., 65, Cornhill 1862 (1)

2. An Essay on the Principle of Population, 1st edition, 1798 ThomasMalthus

3. The Wealth of Nations 1776 Adam Smith

4. Manifesto of the Communist Party 1848 by Karl Marx and FriedrichEngels

5. The General Theory of Employment, Interest and Money(1936) byJohn Maynard Keynes

6. The Collected Writings of John Maynard Keynes

The dismal economists joyless triumph

ByJoseph E. StiglitzFirst Published: December 23, 2008

NEW YORK: I have long been forecasting that it was only a matter oftime before Americas housing bubble which began in the early daysof this decade, supported by a flood of liquidity and lax regulation would pop.

The longer the bubble expanded, the larger the explosion and thegreater (and more global) the resulting downturn would be.

Economists are good at identifying underlying forces, but they are not

so good at timing. The dynamics are, however, much as anticipated.America is still on a downward trajectory for 2009 with graveconsequences for the world as a whole.

For example, as their tax revenues plummet, state and localgovernments are in the process of cutting back their expenditures.American exports are about to decline. Consumer spending isplummeting, as expected. There has been an enormous decrease in


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(perceived) wealth, in the trillions, with the decline in house and stockprices. Besides, most Americans were living beyond their means, usingtheir houses, with their bloated values, as collateral. That game is up.

America would be facing these problems even if it were not

simultaneously facing a financial crisis. Americas economy had beensupercharged by excessive leveraging; now comes the painful processof de-leveraging.

Excessive leveraging, combined with bad lending and risky derivatives,has caused credit markets to freeze. After all, when banks dont knowtheir own balance sheets, they arent about to trust others.

The Bush administration didnt see the problems coming, denied thatthey were problems when they came, then minimized theirsignificance, and, finally, panicked. Guided by one of the architects of

the problem, Hank Paulson, who had advocated for deregulation andallowing banks to take on even more leveraging, it was no surprisethat the administration veered from one policy to another eachstrategy supported with absolute conviction, until minutes before itwas abandoned for another. Even if confidence really were all thatmattered, the economy would have sunk.

Moreover, what little action has been taken has been aimed at shoringup the financial system. But the financial crisis is only one of severalcrises facing the country: the underlying macroeconomic problem hasbeen made worse by the sinking fortunes of the bottom half of the

population. Those who would spend dont have the money, and thosewith the money arent spending.

America, and the world, is also facing a major structural problem, notunlike that at the beginning of the last century, when productivityincreases in agriculture meant that a rapidly declining share of thepopulation could find work there. Nowadays, increases inmanufacturing productivity are even more impressive than they werefor agriculture a century ago; but that means the adjustments thatmust be made are all the greater.

Not long ago, there was discussion of the dangers of a disorderlyunwinding of the global economys massive imbalances. What we areseeing today is part of that unwinding. But there are equallyfundamental changes in the global balances of economic power: thehoards of liquid money to help bail out the world lie in Asia and theMiddle East, not in the West. But global institutions do not reflect thesenew realities.


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Globalization has meant that we are increasingly interdependent. Onecannot have a deep and long downturn in the worlds largest economywithout global ramifications. I had long argued that the notion ofdecoupling was a myth; the evidence now corroborates that view. Thisis especially so because America has exported not just its recession,

but its failed deregulatory philosophy and toxic mortgages, so financialinstitutions in Europe and elsewhere are also confronting many of thesame problems.

Many in the developing world have benefited greatly from the lastboom, through financial flows, exports, and high commodity prices.Now, all of that is being reversed. Indeed, it is the ultimate irony thatmoney is now flowing from poor and well-managed economies to theUS, the source of the global problems.

The point of reciting these challenges facing the world is to suggest

that, even if Obama and other world leaders do everything right, theUS and the global economy are in for a difficult period. The question isnot only how long the recession will last, but what the economy willlook like when it emerges.

Will it return to robust growth, or will we have an anemic recovery, laJapan in the 1990s? Right now, I cast my vote for the latter, especiallysince the huge debt legacy is likely to dampen enthusiasm for the bigstimulus that is required. Without a sufficiently large stimulus (inexcess of 2 percent of GDP), we will have a vicious negative spiral: aweak economy will mean more bankruptcies, which will push stock

prices down and interest rates up, undermine consumer confidence,and weaken banks. Consumption and investment will be cut backfurther.

Many Wall Street financiers, having received their gobs of cash, arereturning to their fiscal religion of low deficits. It is remarkable how,having proven their incompetence, they are still revered in somequarters. What matters more than deficits is what we do with money;borrowing to finance high-productivity investments in education,technology, or infrastructure strengthens a nations balance sheet.

The financiers, however, will argue for caution: lets see how theeconomy does, and if it needs more money, we can give it. But a firmthat is forced into bankruptcy is not un-bankrupted when a course isreversed. The damage is long-lasting.

If Obama follows his instinct, pays attention to Main Street rather thanWall Street, and acts boldly, then there is a prospect that the economy


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will start to emerge from the downturn by late 2009. If not, the short-term prospects for America, and the world, are bleak.

Joseph E. Stiglitz is a professor of economics at Columbia Universityand recipient of the 2001 Nobel Prize in Economics. This commentary

is published by DAILY NEWS EGYPTin collaboration with ProjectSyndicate (www.project-syndicate.org).

In defence of the dismal science

In a guest article, Robert Lucas, the JohnDewey Distinguished Service Professor ofEconomics at the University of Chicago,

rebuts criticisms that the financial crisisrepresents a failure of economics

Economics focus

Aug 6th 2009 | from PRINT EDITION

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THERE is widespread disappointment with economists now because wedid not forecast or prevent the financial crisis of 2008. The Economistsarticles of July 18th on the state of economics were an interestingattempt to take stock of two fields, macroeconomics and financialeconomics, but both pieces were dominated by the views of peoplewho have seized on the crisis as an opportunity to restate criticismsthey had voiced long before 2008. Macroeconomists in particular werecaricatured as a lost generation educated in the use of valueless, evenharmful, mathematical models, an education that made them

incapable of conducting sensible economic policy. I think thiscaricature is nonsense and of no value in thinking about the largerquestions: What can the public reasonably expect of specialists inthese areas, and how well has it been served by them in the currentcrisis?

One thing we are not going to have, now or ever, is a set of modelsthat forecasts sudden falls in the value of financial assets, like the
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declines that followed the failure of Lehman Brothers in September.This is nothing new. It has been known for more than 40 years and isone of the main implications of Eugene Famas efficient-markethypothesis (EMH), which states that the price of a financial assetreflects all relevant, generally available information. If an economist

had a formula that could reliably forecast crises a week in advance,say, then that formula would become part of generally availableinformation and prices would fall a week earlier. (The term efficientas used here means that individuals use information in their ownprivate interest. It has nothing to do with socially desirable pricing;people often confuse the two.)

Mr Fama arrived at the EMH through some simple theoreticalexamples. This simplicity was criticised in The Economists briefing, asthough the EMH applied only to these hypothetical cases. But Mr Famatested the predictions of the EMH on the behaviour of actual prices.

These tests could have come out either way, but they came out veryfavourably. His empirical work was novel and carefully executed. It hasbeen thoroughly challenged by a flood of criticism which has servedmainly to confirm the accuracy of the hypothesis. Over the yearsexceptions and anomalies have been discovered (even tinydepartures are interesting if you are managing enough money) but forthe purposes of macroeconomic analysis and forecasting thesedepartures are too small to matter. The main lesson we should takeaway from the EMH for policymaking purposes is the futility of trying todeal with crises and recessions by finding central bankers andregulators who can identify and puncture bubbles. If these people

exist, we will not be able to afford them.

The Economists briefing also cited as an example of macroeconomicfailure the reassuring simulations that Frederic Mishkin, then agovernor of the Federal Reserve, presented in the summer of 2007.The charge is that the Feds FRB/US forecasting model failed to predictthe events of September 2008. Yet the simulations were not presentedas assurance that no crisis would occur, but as a forecast of what couldbe expected conditional on a crisis not occurring. Until the Lehmanfailure the recession was pretty typical of the modest downturns of thepost-war period. There was a recession under way, led by the decline

in housing construction. Mr Mishkins forecast was a reasonableestimate of what would have followed if the housing decline hadcontinued to be the only or the main factor involved in the economicdownturn. After the Lehman bankruptcy, too, models very like the oneMr Mishkin had used, combined with new information, gave whatturned out to be very accurate estimates of the private-spendingreductions that ensued over the next two quarters. When BenBernanke, the chairman of the Fed, warned Hank Paulson, the then


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treasury secretary, of the economic danger facing Americaimmediately after Lehmans failure, he knew what he was talkingabout.

Mr Mishkin recognised the potential for a financial crisis in 2007, of

course. Mr Bernanke certainly did as well. But recommending pre-emptive monetary policies on the scale of the policies that wereapplied later on would have been like turning abruptly off the roadbecause of the potential for someone suddenly to swerve head-on intoyour lane. The best and only realistic thing you can do in this context isto keep your eyes open and hope for the best.

After Lehman collapsed and the potential for crisis had become areality, the situation was completely altered. The interest on Treasurybills was close to zero, and those who viewed interest-rate reductionsas the only stimulus available to the Fed thought that monetary policy

was now exhausted. But Mr Bernanke immediately switched gears,began pumping cash into the banking system, and convinced theTreasury to do the same. Commercial-bank reserves grew from $50billion at the time of the Lehman failure to something like $800 billionby the end of the year. The injection of Troubled Asset ReliefProgramme funds added more money to the financial system.

There is understandable controversy about many aspects of theseactions but they had the great advantages of speed and reversibility.My own view, as expressed elsewhere, is that these policies werecentral to relieving a fear-driven rush to liquidity and so alleviating (if

only partially) the perceived need for consumers and businesses toreduce spending. The recession is now under control and noresponsible forecasters see anything remotely like the 1929-33contraction in America on the horizon. This outcome did not have tohappen, but it did.

Not bad for a Dark Age

Both Mr Bernanke and Mr Mishkin are in the mainstream of what onecritic cited in The Economists briefing calls a Dark Age ofmacroeconomics. They are exponents and creative builders of

dynamic models and have taught these spectacularly useless tools,directly and through textbooks that have become industry standards,to generations of students. Over the past two years they (and manyother accomplished macroeconomists) have been centrally involved inresponding to the most difficult American economic crisis since the1930s. They have forecasted what can be forecast and formulatedcontingency plans ready for use when unforeseeable shocks occurred.They and their colleagues have drawn on recently developed


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theoretical models when they judged them to have something tocontribute. They have drawn on the ideas and research of Keynes fromthe 1930s, of Friedman and Schwartz in the 1960s, and of manyothers. I simply see no connection between the reality of themacroeconomics that these people represent and the caricature

provided by the critics whose views dominated The Economistsbriefing.

Economics - Psychology's Neglected BranchBy Sam VakninArticle Word Count: 1933 [View Summary] Comments (0)

"It is impossible to describe any human action if one does not refer to

the meaning the actor sees in the stimulus as well as in the end hisresponse is aiming at." --Ludwig von Mises

Economics - to the great dismay of economists - is merely a branch ofpsychology. It deals with individual behaviour and with massbehaviour. Many of its practitioners sought to disguise its nature as asocial science by applying complex mathematics where common senseand direct experimentation would have yielded far better results.

The outcome has been an embarrassing divorce between economictheory and its subjects.

The economic actor is assumed to be constantly engaged in therational pursuit of self interest. This is not a realistic model - merely auseful approximation. According to this latter day - rational - version ofthe dismal science, people refrain from repeating their mistakessystematically. They seek to optimize their preferences. Altruism canbe such a preference, as well.

Still, many people are non-rational or only nearly rational in certainsituations. And the definition of "self-interest" as the pursuit of thefulfillment of preferences is a tautology.

The theory fails to predict important phenomena such as "strongreciprocity" - the propensity to "irrationally" sacrifice resources toreward forthcoming collaborators and punish free-riders. It even fails toaccount for simpler forms of apparent selflessness, such as reciprocalaltruism (motivated by hopes of reciprocal benevolent treatment in thefuture).
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Even the authoritative and mainstream 1995 "Handbook ofExperimental Economics", by John Hagel and Alvin Roth (eds.) admitsthat people do not behave in accordance with the predictions of basiceconomic theories, such as the standard theory of utility and thetheory of general equilibrium. Irritatingly for economists, people

change their preferences mysteriously and irrationally. This is called"preference reversals".

Moreover, people's preferences, as evidenced by their choices anddecisions in carefully controlled experiments, are inconsistent. Theytend to lose control of their actions or procrastinate because they placegreater importance (i.e., greater "weight") on the present and the nearfuture than on the far future. This makes most people both irrationaland unpredictable.

Either one cannot design an experiment to rigorously and validly test

theorems and conjectures in economics - or something is very flawedwith the intellectual pillars and models of this field.

Neo-classical economics has failed on several fronts simultaneously.This multiple failure led to despair and the re-examination of basicprecepts and tenets.

Consider this sample of outstanding issues:

Unlike other economic actors and agents, governments are accorded aspecial status and receive special treatment in economic theory.

Government is alternately cast as a saint, seeking to selflesslymaximize social welfare - or as the villain, seeking to perpetuate andincrease its power ruthlessly, as per public choice theories.

Both views are caricatures of reality. Governments indeed seek toperpetuate their clout and increase it - but they do so mostly in orderto redistribute income and rarely for self-enrichment.

Economics also failed until recently to account for the role ofinnovation in growth and development. The discipline often ignored thespecific nature of knowledge industries (where returns increase rather

than diminish and network effects prevail). Thus, current economicthinking is woefully inadequate to deal with information monopolies(such as Microsoft), path dependence, and pervasive externalities.

Classic cost/benefit analyses fail to tackle very long term investmenthorizons (i.e., periods). Their underlying assumption - the opportunitycost of delayed consumption - fails when applied beyond the investor'suseful economic life expectancy. People care less about their


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grandchildren's future than about their own. This is becausepredictions concerned with the far future are highly uncertain andinvestors refuse to base current decisions on fuzzy "what ifs".

This is a problem because many current investments, such as the fight

against global warming, are likely to yield results only decades hence.There is no effective method of cost/benefit analysis applicable to suchtime horizons.

How are consumer choices influenced by advertising and by pricing?No one seems to have a clear answer. Advertising is concerned withthe dissemination of information. Yet it is also a signal sent toconsumers that a certain product is useful and qualitative and that theadvertiser's stability, longevity, and profitability are secure. Advertisingcommunicates a long term commitment to a winning product by a firmwith deep pockets. This is why patrons react to the level of visual

exposure to advertising - regardless of its content.

Humans may be too multi-dimensional and hyper-complex to beusefully captured by econometric models. These either lack predictivepowers or lapse into logical fallacies, such as the "omitted variablebias" or "reverse causality". The former is concerned with importantvariables unaccounted for - the latter with reciprocal causation, whenevery cause is also caused by its own effect.

These are symptoms of an all-pervasive malaise. Economists aresimply not sure what precisely constitutes their subject matter. Is

economics about the construction and testing of models in accordancewith certain basic assumptions? Or should it revolve around the miningof data for emerging patterns, rules, and "laws"?

On the one hand, patterns based on limited - or, worse, non-recurrent -sets of data form a questionable foundation for any kind of "science".On the other hand, models based on assumptions are also in doubtbecause they are bound to be replaced by new models with new,hopefully improved, assumptions.

One way around this apparent quagmire is to put human cognition

(i.e., psychology) at the heart of economics. Assuming that beinghuman is an immutable and knowable constant - it should beamenable to scientific treatment. "Prospect theory", "boundedrationality theories", and the study of "hindsight bias" as well as othercognitive deficiencies are the outcomes of this approach.

To qualify as science, economic theory must satisfy the followingcumulative conditions:


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All-inclusiveness (anamnetic) - It must encompass, integrate, andincorporate all the facts known about economic behaviour.

Coherence - It must be chronological, structured and causal. It mustexplain, for instance, why a certain economic policy leads to specific

economic outcomes - and why.

Consistency - It must be self-consistent. Its sub-"units" cannotcontradict one another or go against the grain of the main "theory". Itmust also be consistent with the observed phenomena, both thoserelated to economics and those pertaining to non-economic humanbehaviour. It must adequately cope with irrationality and cognitivedeficits.

Logical compatibility - It must not violate the laws of its internal logicand the rules of logic "out there", in the real world.

Insightfulness - It must cast the familiar in a new light, mine patternsand rules from big bodies of data ("data mining"). Its insights must bethe inevitable conclusion of the logic, the language, and the evolutionof the theory.

Aesthetic - Economic theory must be both plausible and "right",beautiful (aesthetic), not cumbersome, not awkward, notdiscontinuous, smooth, and so on.

Parsimony - The theory must employ a minimum number of

assumptions and entities to explain the maximum number of observedeconomic behaviours.

Explanatory Powers - It must explain the behaviour of economic actors,their decisions, and why economic events develop the way they do.

Predictive (prognostic) Powers - Economic theory must be able topredict future economic events and trends as well as the futurebehaviour of economic actors.

Prescriptive Powers - The theory must yield policy prescriptions, much

like physics yields technology. Economists must develop "economictechnology" - a set of tools, blueprints, rules of thumb, andmechanisms with the power to change the " economic world".

Imposing - It must be regarded by society as the preferable andguiding organizing principle in the economic sphere of humanbehaviour.


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Elasticity - Economic theory must possess the intrinsic abilities to selforganize, reorganize, give room to emerging order, accommodate newdata comfortably, and avoid rigid reactions to attacks from within andfrom without.

Many current economic theories do not meet these cumulative criteriaand are, thus, merely glorified narratives.

But meeting the above conditions is not enough. Scientific theoriesmust also pass the crucial hurdles of testability, verifiability,refutability, falsifiability, and repeatability. Yet, many economists go asfar as to argue that no experiments can be designed to test thestatements of economic theories.

It is difficult - perhaps impossible - to test hypotheses in economics forfour reasons.

Ethical - Experiments would have to involve human subjects, ignorantof the reasons for the experiments and their aims. Sometimes even thevery existence of an experiment will have to remain a secret (as withdouble blind experiments). Some experiments may involve unpleasantexperiences. This is ethically unacceptable.

Design Problems - The design of experiments in economics is awkwardand difficult. Mistakes are often inevitable, however careful andmeticulous the designer of the experiment is.

The Psychological Uncertainty Principle - The current mental state of ahuman subject can be (theoretically) fully known. But the passage oftime and, sometimes, the experiment itself, influence the subject andalter his or her mental state - a problem known in economic literatureas "time inconsistencies". The very processes of measurement andobservation influence the subject and change it.

Uniqueness - Experiments in economics, therefore, tend to be unique.They cannot be repeated even when the SAME subjects are involved,simply because no human subject remains the same for long.Repeating the experiments with other subjects casts in doubt the

scientific value of the results.

The undergeneration of testable hypotheses - Economic theories donot generate a sufficient number of hypotheses, which can besubjected to scientific testing. This has to do with the fabulous (i.e.,storytelling) nature of the discipline.


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In a way, economics has an affinity with some private languages. It is aform of art and, as such, it is self-sufficient and self-contained. Ifcertain structural, internal constraints and requirements are met - astatement in economics is deemed to be true even if it does not satisfyexternal (scientific) requirements. Thus, the standard theory of utility is

considered valid in economics despite overwhelming empiricalevidence to the contrary - simply because it is aesthetic andmathematically convenient.

So, what are economic "theories" good for?

Economic "theories" and narratives offer an organizing principle, asense of order, predictability, and justice. They postulate an inexorabledrive toward greater welfare and utility (i.e., the idea of progress).They render our chaotic world meaningful and make us feel part of alarger whole. Economics strives to answer the "why's" and "how's" of

our daily life. It is dialogic and prescriptive (i.e., provides behaviouralprescriptions). In certain ways, it is akin to religion.

In its catechism, the believer (let's say, a politician) asks: "Why... (andhere follows an economic problem or behaviour)".

The economist answers:

"The situation is like this not because the world is whimsically cruel,irrational, and arbitrary - but because ... (and here follows a causalexplanation based on an economic model). If you were to do this or

that the situation is bound to improve".

The believer feels reassured by this explanation and by the explicitaffirmation that there is hope providing he follows the prescriptions.His belief in the existence of linear order and justice administered bysome supreme, transcendental principle is restored.

This sense of "law and order" is further enhanced when the theoryyields predictions which come true, either because they are self-fulfilling or because some real "law", or pattern, has emerged. Alas,this happens rarely. As "The Economist" notes gloomily, economists

have the most disheartening record of failed predictions - andprescriptions.

About The Author

Sam Vaknin is the author of Malignant Self Love - Narcissism Revisitedand After the Rain - How the West Lost the East. He is a columnist forCentral Europe Review, PopMatters, and eBookWeb , a United Press


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International (UPI) Senior Business Correspondent, and the editor ofmental health and Central East Europe categories in The OpenDirectory Bellaonline, and Suite101 .

Until recently, he served as the Economic Advisor to the Governmentof Macedonia.Privilege

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